Saturday, June 13, 2009

Then, as in 2008, Moscow had the feeling of a boomtown to which young professionals flocked to make their fortune. The stock market, although small and illiquid, was one of the best performing in the world, and a middle class was taking shape. Russia was thought to be too big and too important (and too nuclear) to fail, so fears that it would become infected by the Asian crisis—which was spreading throughout emerging markets in the second half of 1997 and early 1998—were thought to be unfounded. We know the rest of the story. In August 1998 came default, devaluation, despair.

What then can be learned from these two crises, which occurred almost exactly 10 years apart? Russia has moved on in many ways since the last major crisis hit. What we may gain by looking back at the events of 1998 is some comfort, knowing that Russia today is more robust now than it was back then. But some apprehension is also warranted: the economy's rebound may be less immediate and profound this time.

What we are certain to find is that Russia has not done enough to inoculate itself from recurring crises that stem, in large part, from a sharp drop in the price of oil. Russia is still a resource-dependent economy that must take meaningful steps to diversify in a market-friendly way.